The nil consideration election found in section 156 of the
Excise Tax Act (ETA), sometimes referred to as the related
party election, has recently been updated with changes to be in
effect January 1, 2015. For those of you not familiar with this
election, it allows members of a closely related group to treat
certain taxable supplies between them as having been made for no
consideration. Essentially, this eliminates the need to collect and
remit taxes by one member and then claim an input tax credit by the
other member, which can sometimes result in cash flow issues,
especially with large transactions and differing reporting
Currently, when members qualify for the election they are
required to complete a prescribed form, GST25 "Closely Related
Corporations and Canadian Partnerships," and retain a copy of
that form with their books and records. The Canada Revenue Agency
(CRA) does not currently require that members file this form.
Effective January 1, 2015, members who qualify for the election
and wish to apply it are required to complete a new prescribed
form, RC4616, not yet released. The due date for this new election
form will depend on whether the election is a new election (the
members did not previously complete an election) or a continuation
of an existing election (the members previously completed an
election). Generally, where the members are completing an election
form for the first time, the due date of the form will be the
earlier of the GST/HST return filing deadlines of the members that
includes the effective date of the election. For example, if the
effective date of the election is January 1, 2015 and there are
three members listed in the election form, each with different
filing frequencies – monthly, quarterly and annual –
the election form would be due February 1, 2015, which is the
earliest return filing deadline amongst the three members, i.e.,
the member with the monthly filing frequency. The assumption in
this scenario is that the total revenue of the three members is
less than $6 million and one member has elected to file the GST/HST
monthly. Where the members are currently applying the election
(have previously completed an election form) before January 1,
2015, the election form is deemed never to have been filed and they
are required to complete a new election form. The due date for the
new election form in these circumstances is between January 1, 2015
and December 31, 2015.
Other changes to this section of the ETA include a change to the
definition of a "qualifying member," which may allow
additional members to elect under the new election who didn't
previously qualify under the old election. Also, a joint and
several liability subsection has been added.
Given these recent changes, it is a good time to reconsider the
nil consideration election – this is true for both
corporations and partnerships currently using the election and
those that are not. For those that are currently using the
election, it is a good time to review the conditions to qualify for
the new election to determine if any new members can be added to
the election and to confirm that all existing members continue to
qualify for the election; to verify that the election exists and
has in fact been filed in the books and records and that the
election has not been used for transactions to which the election
does not apply. For corporations and partnerships who are not
currently using the nil consideration election, it may be a good
time to consider if you qualify for this election, as it may
simplify record keeping for bookkeeping transactions and GST/HST
filings and potentially improve cash flow.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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